Leading hydroponic company, Pegasus Agriculture, announced that its Hydroponic Investment Product is now certified as being shariah compliant through the Shariah Supervisory Board as of June 3, 2016.
Headquartered in Dubai, Pegasus is a leading owner and operator of hydroponic farming operations in the Middle East and North Africa regions.
Shariah law is rooted in the teaching found in the Quran and the Hadith and is a governing framework in civil and commercial law. Commercially, shariah law entails three principles – the first prohibits interest, the second governs the sharing of profit and losses, and the third prohibits excessive speculation. Today, less than 1% of all global finance assets are certified as shariah-compliant, according to a Pegasus statement.
Although compliance rates remain extremely low, agribusinesses and ag finance vehicles are beginning to view compliance as a means of expanding market share.
At the beginning of this year, another hydroponic business, Massachusetts-based agtech company, FreshBox Farms, appointed Shariyah Review Bureau (SRB) to structure and oversee the company’s Shariah compliance as it offers customers Islamic leasing investment options. This shariah compliant project was the first of its kind, and will enable Islamic investors to lease FreshBox’s hydroponic agricultural units under Islamic financial modalities.
As opposed to other leasing structures, under a Shariah compliant lease, the liabilities related to the ownership of the leased asset are the responsibility of the lessor and not the lessee, Saif Shawqi, Assistant Business Developer, Shariyah Review Bureau told GAI News. In addition, if payments are delayed, extra interest may not be collected, and any extra funds that are collected must be donated to charity and cannot be considered income. The most significant difference in structure, however, is that the rental amount cannot be unilaterally increased. If an increase is called for, a new agreement must be signed between the two concerned parties with mutual consent.
The offering of shariah compliant leases by FreshBox, and the company’s agreement with Shariyah Review Board to oversee compliance throughout every aspect of each investment, is part of the company’s plans for successful global expansion. Within the next five years, FreshBox is planning to build 20 farms in the U.S., with each farm being a separate fundraising vehicle of US$3 million, for a total target fundraising in the U.S. of US$60 million. Globally, within this time frame, the company is planning to launch a minimum of five farms in at least 20 countries, translating to an additional fundraising of US$300 million.
Additionally, in November of last year, the MyETF Thomson Reuters Asia Pacific ex-Japan Islamic Agribusiness Fund (MyETF-AGRI) – the first agriculture-related Islamic ETF in the world was launched through a partnership between Malaysia’s leading exchange traded fund (ETF) manager, i-VCAP Management Sdn Bhd and Thomson Reuters.
MyETF-AGRI will not invest solely in commodity stocks, but will invest in the 30 shariah compliant companies within the newly launched Thomson Reuters Asia Pacific ex-Japan Islamic Agribusiness Index, the first of its kind in the Asia Pacific region, along the same weightings as they are on the benchmark index. Through this strategy, the MyETF-AGRI will give investors exposure to a diversified field of shariah compliant upstream agricultural companies operating in Malaysia, Singapore, Indonesia, Thailand, the Philippines, Taiwan, Korea, Hong Kong, Australia, and New Zealand.
The global value of the ETF market is nearing $3 trillion, however, shariah-compliant ETFs account for only $320 million of that value according to i-VCAP. Malaysia is the leader in the world for Shariah-compliant ETF products, with its four Shariah-compliant ETFs accounting for $75 million, or 23% of the total global Shariah-compliant ETF value.
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Lynda Kiernan